• NASDAQ (0.53%) sets new year high. Dow (-0.39%) and S&P (-0.05%) continue to test key resistance area.

  • Disappointing earnings from Morgan Stanley and Wells Fargo highlight commercial real estate woes

  • Credit Suisse beats forecasts on trading, but expects ‘the global economic environment to remain challenging and uneven business conditions to persist’

  • Japan’s trade surplus widens as exports rise and imports fall

  • ECB’s Noyer said Q2 bank lending in the euro area suggests credit has ‘loosened considerably’, and has almost stabilized

  • A report released today will show a sharp rise in protectionist probes

  • Today’s calendar is packed with the US initial claims and existing home sales, the UK retail sales and the French and Belgian business confidence surveys


Markets

On Wednesday, government bonds retreated, as investors decided to take profit on Tuesday’s strong rally. This rally was spurred by dovish comments from Mr Bernanke who said in his semi-annual testimony to the House that a highly accommodative stance of monetary policy will still be appropriate for an extended period, while his exit strategy eased inflation fears. Yesterday’s testimony before the Senate brought no new info to the markets.

The eco data didn’t play a major role, although the US house price index surprised on the upside rising, 0.9% M/M in May. Recently, there have been some encouraging data about the US housing sector, which may suggest that a turnaround is coming closer. In this context, today’s release of June’s existing home sales may have market moving potential.

Yesterday, the rally on the US equity markets halted, as the earnings from Morgan Stanley and Wells Fargo disappointed amid rising concerns about commercial property. Both the Dow Jones (-0.39%) and S&P 500 (-0.05%) closed slightly lower, but the NASDAQ (+0.53%) extended its recent impressive rally higher. As such, the S&P has still not broken decisively above the year highs at the 950 zone, which would signal the end of the bear market. Today, the earnings season continues with Microsoft, 3M, ABB, …

In a daily perspective, the US yield curve steepened, as 2-year yields rose by 1.6 basis points and 10-year yields by 6.2 basis points. Today, supply concerns may again come to the forefront, as the Treasury will announce the amounts of next week’s 20-year TIPS reopening and 2-, 5- and 7-year Note auctions. In the euro zone, yields moved slightly higher too, although the eco data were mixed. French consumer spending surprised on the upside, while the euro zone industrial new orders again disappointed. German yields rose by 1-2 basis points yesterday. Today, much attention will be focused on the first national business confidence data from France and Belgium ahead of tomorrow’s German IFO and PMI surveys. Last month, the rebound in the services PMI unexpectedly halted. In the UK, Gilts yesterday underperformed the German bond market in the wake of the Minutes from the Bank of England. These did little to ease market fears that the MPC’s quantitative easing policy is nearing an end. Today, the June retail sales will be released.

On the currency market, sterling reversed early losses on the Minutes, and remains in a very tight range against both the euro and the dollar. The euro however continues to move higher against the dollar and is now closing in to the year highs at around 1.4340, as the combination of low US interest rates and the improvement in risk appetite continues to weigh on the dollar. This morning, the yen cross rates (USD/JPY and EUR/JPY) trade slightly higher in the range.